Hiring an investment banker
Whether to hire an investment banker really depends on your particular circumstances; it’s basically an investment decision. Investment banking fees can really add up, and most investment banks charge a substantial minimum fee so it makes good sense to really consider what you get in exchange for the fee you pay. As with most decisions involving M&A, you need to carefully assess your specific circumstances; however, here are some general considerations you will likely want to consider:
- How big is the transaction? Depending on the bank’s minimum fee (which is often subject to discussion), a transaction will need to be large enough to support that fee—typically at least $5-$10 million.
- How much M&A experience do you and those on your management team have? Selling a business and maximizing sale proceeds is a different task than building that business. If neither you nor your team has a lot of experience in successfully managing an exit or understanding industry-specific valuation metrics, give a banker some thought.
- How difficult/time-consuming/distracting will the sale process be? Many CEOs underestimate how difficult this process can be and how long it will take. A target company can lose focus on executing its business plan while pursuing a sale. This can dissipate the target’s in the sale transaction and ultimately harm the company’s value as current performance is the main value driver for most M&A transactions.
- What is the likelihood of shareholder litigation in your deal? This is generally more of a issue; however, if your company has experienced a cram down financing or if the sale proceeds will not likely be sufficient to pay all preferences and otherwise all shareholders meaningful value, the potential for shareholder litigation shouldn’t be overlooked. Accordingly, having an independent third-party assist in the sale process and potentially opine as to the fairness of the transaction consideration can help mitigate that risk. These issues should be discussed with legal counsel.